The Dollar Deluge; the Bush Team Signals That Its 'Strong Dollar' Policy Will Be a Reflection of Its Military Policy: Ideological and Unilateral

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Byline: Jeffrey E. Garten (Jeffrey E. Garten is dean of the Yale School of Management.)

There was one telling sign about U.S. Treasury Secretary John Snow's trip to Europe this past week. Everywhere he went he reaffirmed that the Bush administration supported a strong dollar. But while traders and investors from Wall Street, London, Tokyo, Hong Kong and elsewhere listened intently to Snow's every word, they weren't convinced by his mantra. Fact is, as Snow made his way from Dublin to Berlin, with interim stops in London and Warsaw, the greenback dropped against the euro, the British pound, the Swiss franc, the Polish zlotys, the Japanese yen, the South Korean won and the Canadian dollar. Meanwhile the price of gold, a classic hedge against the dollar, reached a 16-year high.

There are at least two ways to look at Snow's words and the global reaction to them. To begin with, no matter what the secretary says and how many times he says it, many investors and traders are skeptical, either of the Bush's commitment to a strong dollar, or of its ability to do what is necessary to achieve a strong dollar--namely restrain the U.S. budget deficit.

A second way of evaluating Snow's trip is that he left little doubt that the Bush administration would now behave in the international economic arena much as it has in the political and military sphere. It would speak confidently if not arrogantly, and it would not shy away from pressing its strong ideology around the globe. It would invite other countries to participate in its plans, but in the end it would move ahead with or without them. Its dollar policy will be a mirror of its Iraq policy. For a world hoping to see signs of a new, more diplomatic American approach in Bush's second term, these are disappointing signals.

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